LONDON: Sterling hit a two-month low against a basket of currencies on Monday as investors pushed back even further their expectations of when interest rates will rise amid concern about persistently low inflation.
Britain's biggest bank, HSBC, said on Monday that it had shunted back its prediction of when rates would increase by a whole year -- from the first quarter of 2015 to early 2016 -- in one of the biggest forecast changes in recent history.
That followed comments from Bank of England Governor Mark Carney and Chief Economist Andy Haldane over the weekend, both of whom expressed concern over the threat of deflation. Haldane said he was watching "like a dove" for signs that expectations of very low inflation in Britain could become entrenched.
Carney, meanwhile, warned of "huge disinflationary forces" coming from Britain's trading partners and continued slack in the labour market.
All of that helped sterling slip to a two-month low against a trade-weighted basket of currencies. Against the dollar, the pound fell to $1.5650, not far from a 14-month low of $1.5593 struck on Friday.
"The Inflation Report that came out last week has pushed back expectations (of rate hikes) ... and there are a lot of medium-term investors who are still reacting to that now," said Adam Myers, European head of FX strategy at Credit Agricole.
Last week, the BoE said inflation was likely to slow, pushing back bets on the first post-crisis rate hike to the end of 2015.
"The BoE's forecasts were assuming the first rate rise in October 2015, however some economists are now even talking about this being delayed to 2016," said Stewart Richardson, chief investment officer at RMG Wealth Management, adding that sterling would struggle in the near term.
Traders are awaiting CPI inflation data due on Tuesday, which is expected to show consumer prices remaining subdued at 1.3 percent, putting little pressure on the BoE to hike rates any time soon.
Having hit a one-month low against the euro earlier in the day, sterling strengthened to 79.61 pence per euro after European Central Bank chief Mario Draghi said unconventional measures deployed by the bank could include the purchase of sovereign bonds.
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